The seller is liable if a third party has any right over the sold item that excludes, reduces, or limits the buyer’s right, and the buyer was not informed of this and did not consent to acquiring the item with such an encumbrance. The seller of any other right is responsible for its existence and for ensuring there are no legal obstacles to its enforcement.²²⁵

The seller’s performance is considered to have a legal defect if one of the following conditions exists or arises later:

• The conditions for acquiring ownership rights in favour of the buyer are not met or cease to exist.
• The item is subject to rights or legal facts that restrict the buyer’s ability to exercise ownership rights.²²⁶

If a third party claims a right over the item, the buyer must inform the seller, unless the seller is already aware, and request that the seller removes the claim within a reasonable period. If the item is determined by type, the seller must provide another item without a legal defect.

If the seller fails to comply and the item is taken from the buyer, the contract is automatically terminated. If the buyer’s right is only reduced or limited, they may choose either to terminate the contract or demand a proportional reduction in the purchase price. If the seller does not act within a reasonable time to free the item from third-party claims, the buyer may terminate the contract if its purpose cannot be achieved. In all cases, the buyer has the right to compensation for damages. If the buyer knew at the time of contracting that the item might be taken away or their rights might be reduced or limited, they do not have the right to compensation if this happens but can demand a refund or price reduction.²²⁷

Example: A sells B a motorhome, which is later temporarily seized by the police because it is listed as a stolen vehicle. A sold B a motorhome with a legal defect, so B terminated the contract. –  The key issue in determining the validity of the contract termination is whether A’s performance was burdened by a legal defect. Court precedents recognise the seizure of a vehicle by the police due to its stolen status as a legal defect, as it restricts the buyer’s ownership rights—possession and use of the vehicle. A is therefore liable for the legal defect under Article 488 of the OZ. B informed A about the seizure, but A refused to provide another motorhome. By doing so, A demonstrated that they had no intention of resolving the defect, even within an additional period. This means that B had the right to terminate the contract.²²⁸